Veteran fund manager highlights big change, picks gold stock as best pick

Speaking exclusively with TheStreet, Hedge fund manager Jeff Muhlenkamp highlighted Newmont as his single best trade. Muhlenkamp described Newmont as a compelling investment with significant upside potential in the current economic climate. He also cited the company’s strategic acquisition of Newcrest, its high market cap as well as the upward trend of gold prices.

Transcript:

CONWAY GITTENS: Jeff Muhlenkamp is Portfolio Manager at Muhlenkamp & Company. Jeff, tell me, what’s your single best trade?

JEFF MUHLENKAMP: Well, I’ll tell you what we like right now, is a gold miner called Newmont Corp. So Newmont just bought another gold miner, Newcrest, a little less than a year ago. And there are two reasons I like the trade. One is you’ve got kind of the typical, we just bought a company and we find some synergies and we’re going to make some efficiencies happen in our new company, and that’ll result in a more profitable company.

So you’ve got that going on. And I think that gets you to a, you know, kind of a mid-single digit, maybe a high single digit return all on its own. But you’ve also got some interesting things going on in the world in terms of the price of gold and the use of gold. And so if gold becomes more valuable going forward than it has been in the recent past, then, you know, instead of a mid-single digit or high single digit return, you can expect something better than that. So I think Newmont presents kind of a call option on the price of gold as we look at what’s going on. So that’s that’s my take.

CONWAY GITTENS: And how much is your bullishness on Newmont tied to Newmont being a derivative or a beneficiary of the AI play? And I ask that only because I know that the CEO made some comments recently saying that, you know, the demand for copper and other key metals because they’re needed for, you know, AI components means that it’s going to be greater demand and that the industry is going to need to meet that demand by consolidation and other factors.

JEFF MUHLENKAMP: Doesn’t depend on AI at all. I’m really focused on the price of gold and gold in terms of both a hedge against inflation and as a, almost a trading currency going forward where it has not been that in the past. So my thesis does not imply, or depend on, Newmont selling more copper or more expensive copper into the markets to support AI growth. That’s not part of my thesis at all.

CONWAY GITTENS: So how could interest rates then, if you’re focusing more on Newmont, since it’s the world’s largest gold miner right, and you’re focusing on the price, how could interest rates and what’s happening with interest rates impact the price of gold and thus impact your bullishness on Newmont?

JEFF MUHLENKAMP: See, that’s very interesting because historically gold did well when interest rates, when real interest rates were negative right. So adjusting interest rates for inflation, if that gave you a negative number like we actually saw for most of the period from 2010 to 2020, that’s when gold would do well. And historically, gold did poorly when real interest rates went from negative to positive, which we saw happen in 2022 when the Fed started raising short term interest rates. And so what everybody expected was that the price of gold was going to decline as real interest rates became more positive. But it didn’t happen. And so you’ve got to ask yourself, has something changed? You know, kind of around the world in terms of how investors are looking at Gold and how other people are looking at Gold besides investors, that that 40 year correlation, which appears to have inverted for the last year or two, is going to stay inverted going forward. And I suspect it will.

You’ve had central banks, instead of accumulating treasuries for the last few years, have now started accumulating gold. You’ve had the US, as a result of the Ukraine war, clamped down on Russian holdings of treasuries, which means that a whole bunch of other countries are not going to be interested in dollar denominated assets as a reserve if they fear that they might lose those if they get sideways with the US government. So there have been some shifts in terms of how people view gold and how people view treasuries over the last year or two that I think are going to persist going forward. And I think they’re tailwinds for the price of gold. But that’s a really intriguing question and something I’m going to watch. You know, if in fact, the price of gold starts to decline as real interest rates continue to stay positive, then that is a definite negative for my thesis. That is a reversal of what we’ve seen in the last two years.

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